compliance for e-commerce business

2A simple, fast and inexpensive compliance management tool designed for small and medium business

Emergence of e-commerce in India

The rate of digital buyers in India has increased enormously in India in the last two years.

Research say that almost 27 % of the internet users in India are involved in digital shopping

Government Initiatives Increase in

internet seepage. Elevation of

Smartphone adoption.

Evolution of different payment options

Continuous

Innovation


Amendments and new regulations introduced

a) Introduction of FDI policies specifically on e-commerce.

b) Simplifying Tax liabilities with introduction of GST.

c) Regulations on FBOs

Digital India Start Up India Make in India Skill India

Government Initiatives


What is E-Commerce?

The Department of Industrial Policy & Promotion (DIPP) defines e-commerce as:

E-commerce means buying and selling of goods and services including digital products over digital and electronic network.

Further, E-commerce entity has been defined as:

“..a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.”

Chapter XI B of Model GST Law contemplates:

Electronic Commerce to mean:i. Supply or receipt of goods and/or

services, or ii. Transmitting of funds or data, over an

electronic network, primarily the internet, iii. by using any of the applications that rely

on the internet, like but not limited to e-mail, instant messaging, shopping carts, web services, etc. irrespective of the fact whether the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator.


Types of E-Commerce Activity

Business-to-business (B2B): This model provides a platform for businesses to find other competitive suppliers. It includes distribution services, procurement services, digital / online market place like services etc. (Example: Amazon Business)

Business-to-consumers (B2C): This involves direct dealings between businesses and consumers. (Example: Titan selling its products through the electronic medium)

Consumer-to-consumer (C2C): This model brings together consumers on a single platform for trading on goods. (Example: OLX, Quickr.)

Consumer-to-business(C2B):In this model, consumers (i.e. individuals) provide services/ goods to businesses and create value for the business. (Example: Elance, Fiverr.)Business-to-business-to consumer (B2B2C): This is a variant of the B2C model wherein there is an additional intermediary business to assist the first business transacts with the end consumer. (Example: Flipkart)


Models of E-commerce

Inventory based model of e-commerce – Ecommerce activity where the inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly. Example – Big Basket, Zovi

Marketplace based model of e-commerce- providing of an information technology platform by an e-commerce entity on digital and electronic network to act as a facilitator between buyer and seller. Example – Flipkart and Amazon

Aggregator:Aggregator to mean a person, who owns and manages an electronic platform, and by means of the application and communication device, enables a potential customer to connect with the persons providing service of a particular kind under the brand name or trade name of the said aggregator. Examples – Ola and Uber Cabs

Bricks-and-Clicks retailers: Where a company sell their goods at traditional stores and over the Internet – Say Pizza Hut

Pureplay – Just online and no / very minimal vertical integration. These players are involved in one category of products


Brand A

Brand B

Brand C

Brand D

e- Commerce.com online portal Consumers

e- Commerce.com inventory

Who

lesa

le p

rice

Discounted Price

INVENTORY BASED MODEL OF E-COMMERCE


Brand A

Brand B

Brand C

Brand D

e-commerce.com online portal Consumers

MARKETPLACE BASED MODEL OF E-COMMERCE


100% FDI under automatic route is permitted in marketplace model of e-commerce.

FDI is not permitted in inventory based model of e-commerce.

Single Brand product retail trading--- Automatic route up to 49%, approval beyond 49%

“An Indian manufacturer is permitted to sell its own branded products in any manner i.e. wholesale, retail, including through e-commerce platforms.”

Multi Brand Retail Trading 51% approval route

“Retail trading, in any form, by means of e-commerce, would not be

permissible, for companies with FDI, engaged in the activity of multi- brand retail

trading.”

FDI policies. E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other servicesii) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based modeiii) An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies. iv) In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.v) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.vi) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller. vii) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.


Challenges

• Significant dependence on sellers

• Lack of a robust due diligence mechanism

• Delivery logistics

• Returns and refunds -Platform owners

providing reverse logistics increase the

cost of delivery and operational

efficiencies for the logistic providers.

OPERATIONAL CHALLENGES

• Different States have different laws and rules.

• Section 81 of the IT Act provides that nothing contained in the IT Act will restrict any person from exercising the rights granted to them under the Copyright Act, and the Patents Act, 1970.

• Section 79 has to be read in conjunction with Section 81 of the IT Act - Super Cassettes Industries Ltd. Vs. Myspace Inc. and Anr. (2011(48)PTC49(Del)).

REGULATORY CHALLENGES


Information Technology Act, 2000 and the Information Technology (Intermediaries guidelines) Rules, 2011

Section 2(1)(w): "Intermediary" with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes.., online market places and cyber cafes.

While the Information Technology Act and the allied Rules prescribe the general compliances that apply to e-commerce operators, certain industry specific compliances have also been contemplated by the legislature.


Compliances for Food Business Operators:The Food Safety and Standards Authority of India has issued Draft norms for e-commerce Food Business Operators on 20th September, 2016.

E-commerce FBO are required to obtain compulsory license from the Central Licensing Authority under Schedule I of the Food Safety and Standards(Licensing and Registration of Food Business) Regulation 2011.

Every FBO shall ensure that all the

articles of food satisfy the

requirements of the FSS Act and the rules and regulations made

thereunder at all stages.

They are required to sign an agreement

with the sellers stating that the

sellers are in compliant with the

FSS

They should ensure legible and clear

picture on the principle display

panel.

The picture should be an indicative

image of the same product.

The FBO must display the license/ registration on their

platform.

Mandatory food information like

storage conditions , disclaimers shall be provided without additional cost.

The Food product by the FBO shall be liable for sampling at any point of the

supply chain.

FBO should comply with the basic

hygiene as per the Act.

E-Commerce FBO include Sellers, Vendors, importers, processors, packagers or

manufacturers, who display or offer their food products, including food services, catering services, sale of food or food ingredients for sale to the customers, through either the market based model or

the inventory based model of e-commerce.Operating and providing storage and/or distribution services to sellers, vendors, importers or manufacturers, or food products

listed on their market placeProviding transportation services to the sellers, Vendors, Importers

or Manufacturers, of food products and/or providing last mile delivery to the end customers.


E-commerce entities providing listing/directory services to the sellers, vendors, importers or manufacturers of the food products may not obtain the license. 1) E-commerce entities shall ensure that no misleading or false information or incorrect image is available on their

platform.2) They have to specify on their platform that the liability of any violation of the FSS and applicable Rules and

Regulations made thereunder would be with the sellers, restaurant owners, vendors, importers or manufacturers of the food products.

The FBO Should maintain a Consumer complaint Cell

1) The Cell would notify the sellers, manufacturers, importers immediately on receiving any complains

2) The consumer shall also be re-directed to the consumer call center of the manufacturer.

3) The FBO will co-operate with the sellers, vendors etc. who are liable to take action based on the complaint

The FBO shall delist any food product listed which is not in compliance with the FSS Act or the rules and Regulation.

Continued


E-Pharmacy sector

In India at present there are no specific laws in respect regulating the sale of drugs over internet.

In the 48th meeting of the Drugs Consultative Committee (“DCC”) held on 24th July, 2015 at New Delhi, the impact of advent of e-commerce in pharmaceutical sector was discussed.

The DCC constituted a sub-committee to examine the issue of sale of drugs on the internet in the light of practices being followed in the developed countries.

Subsequently, the Office of Drugs Controller General released an Office Order dated 30th December, 2015, clarifying that although the Drugs and Cosmetics Rules, 1945 ("Rules") do not distinguish between the conventional and over the internet sale / distribution of drugs and the provisions of the Rules have to be complied with in both the cases.


IRDA on Web Aggregators

Compulsory registration of the

Insurance Web-Aggregator.

Shall have a minimum paid up capital/ contribution of rupees twenty-five lakhs, where as for LLPs, the contributions must be

in cash.

The Insurance Web-Aggregator shall submit to the Authority a net worth

certificate duly certified by a Chartered Accountant every year after finalisation of

books of accounts

The Principal Officer, shall submit to the Authority, at the end of each financial year, a certificate confirming that the Insurance Web-Aggregator has complied with all the

Regulations during the financial year

Increase in foreign investment limit from

26% to 49%


Regulatory Framework- Cab Aggregators

Motor Vehicles (Amendment) Bill, 2016• Aggregator services: The Bill defines an aggregator as a digital intermediary or market place. • The aggregator’s services may be used by a passenger to connect with a driver for

transportation purposes. • The Bill requires these aggregators to obtain licenses : Section 93: Agent or canvasser or

aggregator to obtain licence.• The aggregators will also be required to comply with the Information Technology Act, 2000

Key Compliances for Karnataka Cab aggregators.(Karnataka On-demand Transportation Technology Aggregators Rules, 2016)1. Licence mandatory for Aggregators.2. Conditions for grant/renewal of licence:

i. A minimum fleet of 100 taxis – owned or contracted.ii. Monitoring facilitated through GPS/GPRS installed and control room in place.

3. Required vehicle profile for grant of licence4. Must be installed with GPS, digital fare meter capable of generating printed receipts.5. Limits of hire charges fixed .


Consumer Protection Act- pipeline

Consumer Protection Act,1986 (“CPA”) governs the relationship between consumers and service/goods providers.

Scope of ‘Consumer’ proposed to be enhanced under the Consumer Protection Bill, 2015:

The scope of definition of consumer has been widened to include persons buying goods or hiring service for a consideration through any mode, inclusive of but not limited to, offline, and online through electronic means, teleshopping or direct selling or multi level marketing.Prior to this, the Principal Act did not cover transactions through electronic means, teleshopping or direct selling or multi level marketing.

As per recent media reports, Union Minister for Consumer Affairs, Food and Public Distribution, Ram Vilas Paswan has informed that he is hopeful that new Consumer Protection Bill 2015 (“Amendment Bill”) will be passed in the winter session of the parliament.


E-commerce in Real estate Sector

The Real Estate Sector is regulated by Real Estate (Regulation and Development) Act, 2016.

Online real estates portals such as magicbricks.com and common-floor are now within the ambit of Real estate agents under the Real Estate (Regulation and Development) Act, 2016.

They have to i. Obtain registration from Real Estate Regulatory Authority (“Authority”) for facilitating sale/purchase in a

registered real estate project.ii. Facilitate the possession of all the information and documents, as the allottee, is entitled to, at the time of

booking of any plot, apartment or building, (as the case may be).iii. Ensure that they do not indulge in any unfair trade practices such as making any statement which falsely

represents the promoter’s, standard of services provided by the real estate project and permitting publication of any advertisement of amenities that are not intended to be offered.

iv. Ensure that they do not facilitate the sale or purchase of any plot, apartment or building, in a real estate project which is not registered with the Authority;

If a real estate agent fails to obtain registration, he shall be liable to pay a penalty.

Penalty of ten thousand rupees for every day on which such default

continues. It may cumulatively go up to five per cent of the cost of plot, apartment or buildings, (as

the case may be), of the real estate project, for which the sale or

purchase has been facilitated as determined by the Authority


Challenges in the Tax Regime

Central Sales Tax Act, 1956 (“CST Act”) Section 6 imposes a duty on every dealer to pay tax under the CST Act for all inter-state

sales effected by him. According to Section 2 of the CST Act, Dealers are persons engaged in business of buying,

selling, supplying or distributing goods – directly or indirectly for cash or deferred payments, commission remuneration or any other consideration and includes any agent of such dealers.

• Characterization as intra-state or inter-state supply of goods:• In case of inter-state sales, CST is levied in the state from which goods

commence/originate their movement.• The States where the e-Commerce consignments are delivered often allege that the

appropriation has happened in the destination state and demand CST to be paid.• When such e-commerce companies merely offer their warehouse facility to their sellers,

they are treated as agents of dealers and are made to pay CST and VAT.• VAT authorities after considering the logistic model followed by e-commerce, suggested

that they are stock transfers, therefore CST on such transfers cannot be levied. • There is a need of clarification required on this aspect.


• E-commerce operator needs to obtain registration under Section 19 in every such State in which he is so liable irrespective of the value of supply made by them.

• A supplier of goods/services supplying through e-commerce operator needs to obtain registration under Section 19 in every such State in which he is so liable irrespective of the value of supply made by them.

• An aggregator is also liable to the same registration.• The e-commerce operator is required to collect TCS or Tax collection at source• The amount collected by the operator is to be paid to the credit of appropriate

government within 10 days after the end of the month.• The suppliers can claim credit of the TCS.• The TCS collected from the Operator shall be matched with the claims of the Supplier.

GST

TCS: an amount out of the consideration paid or payable to the

actual supplier of goods or services in respect of supplies of goods and /or

services made through such operator.

The timings for such collection/deduction are earlier of the

two events:(i) the time of credit of any amount to the account of the actual supplier of

goods and / or services;(ii) the time of payment of any amount in cash or by any other mode to such

supplier


Speaker

Indranil Choudhury Founder & Chief Executive Officer

Lexplosion Solutions Private Limited

[email protected]

mailto:[email protected]

Contact Us

Lexplosion is also a Member Firm of Leading Indian Industry Associations

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